Economic policies of our political leaders
5. Explain the difference between final and intermediate goods, and give an example of each.
7. What is the value added by all the firms A–E from the production of a product as described below? What did each firm add separately in value and what does it total?
Stage of production Sales value of product
Firm A $1,600
Firm B 2,500
Firm C 3,700
Firm D 5,200
Firm E 7,600
18. The following is a list of figures for a given year in billions of dollars. Using this data, compute: (a) GDP; (b) NDP; (c) NI; (d) PI; (e) DI; (f) Net exports.
Transfer payments $ 16
Government purchases 80
Personal taxes 38
Corporate income taxes 28
Indirect business taxes 15
Social security contributions 8
Undistributed corporate profits 19
Proprietor’s income 25
Compensation of employees 258
Personal consumption expenditures 322
Consumption of fixed capital 4
Rents 10
U.S. exports 14
Corporate profits 70
Interest 12
Dividends 23
Imports to U.S. 17
Gross private domestic investment 63
Net foreign factor income earned in the U.S. 10
19. Which of the following are included and which are excluded in calculating this year’s GDP? Explain in each instance.
(a) A monthly scholarship check received by an economics student
(b) The purchase of a new corncrib by a farmer
(c) The purchase of a used tractor by a farmer
(d) The cashing in of a savings bond
(e) The services of a mechanic in fixing the radiator in his own car
(f) Social security checks received by a retired person
(g) An increase in business inventories
(h) Government purchase of missiles
(i) A barber’s income
(j) Income received from interest on a corporate bond
(k) Cash received from selling a corporate bond
22. The following table shows the price of a specific stereo receiver for a five-year period. Using year 3 as the base year, calculate the price index for each year.
Year Price Price index
1 $ 88 ___
2 $100 ___
3 $120 ___
4 $132 ___
5 $140 ___
23. The next four questions refer to the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year.
Units of Price
Year output per unit
1 16 $2
2 20 3
3 30 4
4 36 5
5 40 6
(a) If year 2 is the base year, give the price index for year 3.
(b) Give the nominal GDP for year 4.
(c) What is the real GDP for year 4?
(d) Tell which years you would deflate nominal GDP and which years you would inflate nominal GDP in finding real GDP.
. 25. The following table shows the price of a specific stereo receiver for a five-year period. Using Year 1 as the base year, calculate the price index for each year.
Year Price Price index
(answers using
Year 1 = 100)
1 $112 ___
2 144 ___
3 160 ___
4 176 ___
5 200 ___
27. The following data show nominal GDP and the appropriate price index for several years. Compute real GDP for each year and indicate whether you have “inflated” or “deflated” nominal GDP in finding real GDP. All GDP are in billions.
Nominal Price level Inflated (I)
Year GDP index Real GDP Deflated (D)
1 $117 120 ___ ___
2 124 104 ___ ___
3 143 85 ___ ___
4 149 96 ___ ___
5 178 112 ___ ___
6 220 143 ___ ___
29. Discuss the merits and demerits of GDP as a measure of the economy’s output performance and as a measure of its standard of living.